ITC considers 'alternative' structure for its hospitality business

Conglomerate ITC may be evaluating real estate investment trust (REIT) as an ‘alternative’ structure, among other options, for its hospitality business as it continues to explore ways to enhance value for stakeholders.

A report from Japanese broking firm Nomura said that divestment of hotels business was on the cards and ITC was evaluating various alternative structures, such as REIT, joint venture, etc, to ensure that it was cost and tax-effective. The report mentioned that the takeaways were from meetings with the ITC management at Nomura’s conference in Singapore.

In response to a query from Business Standard, ITC said that it remained committed to implement its ‘asset-right’ strategy, focus on sweating existing assets, create additional revenue streams and pursue alternative structures in line with industry recovery dynamics towards engendering the next horizon of growth as also enhancing value creation. “Beyond this, we will not comment on any other speculation,” it added.

Industry sources said that several options may be under consideration as alternative structures for hotels.

A structure for hotels was complicated as each property could have different characteristics in terms of land and it was not a homogenous product, they explained.

Anuj Puri, chairman and founder, ANAROCK, a real estate advisory firm, said that going for a REIT is a win-win for ITC as well as its shareholders.

“The company will be able to monetise its assets — which the market has been wanting — without losing control. It will also help lighten its balance sheet and help generate cash for other businesses. It will also benefit the investors at large as they can participate in the REIT offering,” he said.

Under the REIT structure, ITC can move one or more of its hotel properties into a trust structure and list it separately. As per Securities and Exchange Board of India (Sebi) regulations, a REIT has to distribute 90 per cent of its income to the unitholders.

REITs have emerged as a convenient way of holding real estate in portfolios, without physically owning a property. Currently, there are four listed REITs — Embassy Office, Mindspace Business Parks, Brookfield India Real Estate Trust REIT and Nexus Select.

In May, Nexus Select Trust — India’s first retail-focused REIT —successfully launched a Rs 3,200-crore REIT offering. The REIT also owns two hotel properties.

“REIT as an asset class is shaping up well. It is only a matter of time that the market will deepen and mature further. All the four listed REITs have garnered oversubscription. For the wealthy investors, the asset class holds a lot of promise,” Puri said.

 InvITs are similar to REITs, but they hold a portfolio of infrastructure assets (or projects). In the past one year, the market has seen several large corporates raise capital through privately-listed InVITs.

An “alternative” structure for hotels has been in the ITC management’s sights for some years now. It was held back due to the Covid-19 pandemic which majorly disrupted the hospitality industry. But it has recovered since.

In the 2022-23 financial year (FY23), ITC’s hotels segment had a stellar showing with business and leisure travel picking up. Revenues from the segment -- at Rs 2,689 crore -- nearly doubled from Rs 1,348 crore in FY22. Profit before interest and tax (PBIT) was at Rs 557 crore compared to a loss in the previous year.

The bottomline was also propped up by the company’s asset-right strategy. After an investment-led strategy around the early 2000s to expand the footprint, ITC decided to expand under management contracts some years back.

In FY23, 11 new properties were added under management contracts to the group portfolio taking the total number of properties to 121. The total number of rooms in the portfolio is about 11,500 and the ratio of owned to managed is roughly 50:50.